House of Commons Hansard Debates for 20 Apr 1994

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new tax, about which the Government said nothing at the election, and they will return to it again and again, in their desperate attempt to raise money. That is why many people, not only in the House but outside, are concerned about the measure.

Having acknowledged that our amendment was probing, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn .

Amendments made : No. 40, in page 52, line 44, at end insert (ba) the contract relates only to a motor vehicle where the conditions mentioned in subsection (2A) below are satisfied ;'. No. 41, in page 53, line 22, at end insert

(2A) The conditions referred to in subsection (2)(ba) above are that

(a) the vehicle is used, or intended for use, by a handicapped person in receipt of a disability living allowance by virtue of entitlement to the mobility component or of a mobility supplement, (b) the insured lets such vehicles on hire to such persons in the course of a business consisting predominantly of the provision of motor vehicles to such persons, and

(c) the insured does not in the course of the business let such vehicles on hire to such persons on terms other than qualifying terms.

(2B) For the purposes of subsection (2A)(c) above a vehicle is let on qualifying terms to a person (the lessee) if the consideration for the letting consists wholly or partly of sums paid to the insured by

(a) the Department of Social Security,

(b) the Department of Health and Social Services for Northern Ireland, or

on behalf of the lessee in respect of the disability living allowance or mobility supplement to which the lessee is entitled.'. No. 42, in page 53, line 41, at end insert

(7A) For the purposes of this section

(a) "handicapped" means chronically sick or disabled ;

(b) "disability living allowance" means a disability living allowance within the meaning of section 71 of the Social Security Contributions and Benefits Act 1992 or section 71 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 ; (c) "mobility supplement" means a mobility supplement within the meaning of article 26A of the Naval, Military and Air Forces etc. (Disablement and Death) Service Pensions Order 1983, article 25A of the Personal Injuries (Civilians) Scheme 1983, article 3 of the Motor Vehicles (Exemption from Vehicles Excise Duty) Order 1985 or article 3 of the Motor Vehicles (Exemption from Vehicles Excise Duty) (Northern Ireland) Order 1985.'.-- [Sir John Hannam.]

Clause 88 --

Beneficial loan arrangements

5 pm

The Financial Secretary to the Treasury (Mr. Stephen Dorrell) : I beg to move amendment No. 2, in page 68, line 45, at end insert ( ) In determining for the purposes of section 161(1A) and (1B) of that Act (inserted by this section) whether any loans made by any person before 1st June 1994 are made or held on the same terms or conditions, there shall be left out of account any amounts, by way of fees, commission or other incidental expenses, incurred for the purpose of obtaining any of those loans by the persons to whom they are made.'

This is a minor extension to the provision that we introduced to stop employees having to pay income tax on loans from their employers where employers make loans to the public on the same terms. For loans made before 1 June

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1994, the amendment disregards differences between loans to employees and loans to the public caused by the incidental cost of obtaining the loans. That is a small change, but I believe that it will be welcomed by the employees and employers affected, and also by the Inland Revenue, because it will simplify the system.

Mr. Nicholas Brown (Newcastle upon Tyne, East) : As I understand it, the purpose of the amendment is simply to deal with the administrative costs involved in the making of the loan, so it is intended to be an even smaller alteration than the Financial Secretary to the Treasury suggested, because typically those costs are about £100 per transaction. I should welcome an assurance from the Minister that, in the Government's view, the amendment represents simply a tidying up of the original proposition that we discussed in Committee, and that there is no scope for rejigging the arrangements that could allow any unwanted and unwelcome avoidance.

Mr. Dorrell : This is indeed a tidying-up measure. It is slightly more important for the employees concerned than the hon. Gentleman suggests, because under the law as originally written, the fact that an employee had not had to pay a £100 management charge would mean not only that he would not receive the tax concession on the £100 but that he would not receive it at all. That would come about because the public would have to pay the administration charge, so technically the loan would not have been made available on the same terms as loans made to a wider public.

The purpose of the amendment is to tidy up the effects of the clause in that specific set of circumstances. It applies only to loans made before 1 June 1994, because it seems reasonable that, after that date, employers should ensure that if employees are to benefit from the terms of the provision, they must make available to them loans on precisely the same terms as those available to a wider public.

Amendment agreed to .

Clause 93 --

Indexation losses

Amendment made : No. 44, in page 74, line 13, at end insert and Schedule [ Indexation losses : transitional relief ] to this Act (which gives transitional relief) shall have effect for the years 1993-94 and 1994-95.'. -- [Mr. Portillo.]

Clause 122 --

Sale and repurchase of securities : deemed manufactured payments

Mr. Nigel Forman (Carshalton and Wallington) : I beg to move amendment No. 1, in page 115, line 48, at end insert

(10) Before the Treasury appoints a day under subsection (9) above :

(a) the Treasury and the Board of Inland Revenue will consult such organisations as appear to them to be representative of interests substantially affected by sections 737A to 737C ; and

(b) the consultation required by (a) above shall take into account the matters specified in subsection (11) below.

(11) The matters specified for the purposes of subsection (10) above are :

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(a) the amount of taxation that would not be recoverable were no day to be appointed under subsection (9) above ; and

(b) the burden (including compliance) for taxpayers and other affected by sections 737A to 737C.'.

The amendment stands in my name and in that of my hon. Friend the Member for Fulham (Mr. Carrington), and I believe that my hon. Friend hopes to catch your eye later in this short debate, Mr. Deputy Speaker.

I begin by declaring my interests, which appear on the Register of Members' Interests, and which are relevant to the subject. I also record my thanks to the British Merchant Banking and Security Houses Association, one of the organisations that has been most prominent in drawing the subject to the attention not only of the Standing Committee but of Ministers--I believe quite effectively.

By inserting the proposed words at the end of what is now clause 122, my hon. Friend and I hope to achieve several simple but worthwhile purposes. First, we hope to bring about or

encourage--indeed, to require--the fullest possible consultation of practitioners by the Treasury and the relevant officials in the Inland Revenue. Our second aim, which is just as important, is to ensure that the consultation takes place before the new rules are implemented. In other words, to be truly effective from the practitioners' point of view, consultation must take place before the event.

Thirdly, we hope that there will be sufficient time sensibly to address all the practical problems of implementation. The Financial Secretary to the Treasury will know from his experience of tax matters that the area is potentially extremely complicated, so sufficient time is necessary to obtain a sensible tax regime. Fourthly, we want the consultation process to take full account of the potential compliance burdens. If those burdens were too great, adverse consequences for this country could follow.

I hope that the Financial Secretary will be able to confirm that the Government have no intention of discouraging normal commercial repo transactions from being undertaken in the United Kingdom, and that his objective will be to establish a workable regime that strikes an appropriate balance between the need to protect the Exchequer and the need to minimise the extent to which compliance requirements have to be imposed on the market. If my hon. Friend can achieve that balance, many of the objectives to which I have subscribed my name will have been achieved.

Of course clause 122 is necessary to protect the Exchequer, and to ensure a reasonable flow of revenue for this country from the sale and repurchase of securities conducted within this tax jurisdiction. That is understood. But equally, Ministers for their part should understand that, if the tax or the regulatory arrangements under the clause were allowed to become too complicated or burdensome, firms could switch that highly mobile form of business to other financial centres. Then the expected revenue and other wealth-generating benefits of those growing activities could be lost to this country. I have often said in earlier debates on the Bill that we now live in a world of global capital flows, mobile financial services and increasing competition between national tax authorities. In that context, the consultation that the amendment recommends is all the more important. We must take full account of the new global realities if we are to do what is best for Britain, as well as for the financial services industry located here.

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I welcome the letter sent to me on 12 April by the Economic Secretary to the Treasury, which said :

"The Government wishes to ensure that adequate consultation takes place before the new rules are implemented, and indeed it is for that reason that they are to come into force from a future appointed day. The legislation is necessary to protect the Exchequer and implementation cannot be delayed indefinitely but I confirm that a reasonable time will be allowed for practical problems to be addressed and that the consultative process will take account of the compliance burden involved."

That was a good statement from the Economic Secretary, and I hope that my hon. Friend the Financial Secretary will be able to go at least as far as that today, if not further.

In conclusion, naturally I hope that my hon. Friend will be able to accept my modest but necessary amendment. If, for some reason, he cannot do that, I hope that he will at any rate make it crystal clear to me and to the House, on the record, that he and the Chancellor share its spirit and intentions and that they will insist that Inland Revenue officials, in their consultations with the practitioners, act in that light.

Mr. Matthew Carrington (Fulham) : I support my hon. Friend the Member for Carshalton and Wallington (Mr. Forman), because the derivatives industry and trading in derivatives are of increasing importance to the City of London as a financial centre. It would be disastrous if anything happened that gave rise to a decrease in confidence in that industry and which resulted in that market moving away from London to somewhere in Europe or elsewhere in the world. The purpose of the amendment is to get a public statement from the Government that they do not intend to penalise that industry, but to achieve an equitable taxation regime, which both the industry and the Government need, which would allow the industry to develop and to prosper in London while producing the revenues which, quite legitimately, the Government require.

We look for confidence-building rather than for action. We look for the reassurance that nothing will be imposed on the industry until all the foreseen problems are resolved, with the understanding, of course, that the problems have to be resolved within a reasonable period. The clause imposes a time limit of its own accord. I urge my hon. Friend the Financial Secretary to make a statement that will reassure the industry.

Mr. Darling : The trouble with the amendment is that it could equally well be tabled to every other clause in the Bill. All taxpayers could say that they too should be consulted before the Government change the tax regime. However, I very much understand and appreciate the point made by the hon. Members for Carshalton and Wallington (Mr. Forman) and for Fulham (Mr. Carrington) with regard to this industry. Most of us are well aware of the importance of the industry to London, and therefore to the United Kingdom.

Equally, all of us are becoming aware of tax competition, not just in the European Union, but throughout the world. Many people inside and outside the House will have to wake up to the fact that there will be tax competition, and every Government must pay regard to that. Having said that, I believe that there are times when the industry relies rather too much on the excuse that, if it

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is taxed, business will go elsewhere. The Exchequer must be fair to taxpayers in general, as well as being mindful of the effect on the industry.

The central point is that, in some ways, the amendment is a fitting conclusion to the Report stage. Many Committee members, especially those who follow proceedings outside the House, felt that the taxes management provisions of this year's Finance Bill might have been dealt with separately from other provisions that were more politically contentious. When this part of the Bill was being discussed, we were told that it was being taken first under the guillotine because there had already been widespread consultation. That point was open to discussion, to put it no higher than that. It would be useful for the Financial Secretary to tell us whether the Government intend to adopt the practice of introducing a taxes management Bill in addition to the Finance Bill, so that some of the technical matters, which are not as controversial as others, can be debated in greater depth. There were occasions in Committee when we did not do justice to many of the provisions because we did not have the time. If taxes management is mixed up with politically contentious issues, we tend to concentrate on the latter. As a matter of good Government practice, greater attention should be given to the administration of the tax regime.

I have no objection to the Government consulting ; I should be interested to hear what the Government have to say on that. My difficulty with the amendment, which I do not suppose for one minute will be pressed to a Division, is that it would be wrong for the Government to agree to consult in respect of one provision in the Bill and not to make the same concession everywhere else. Having said that, I understand why the hon. Members for Carshalton and Wallington and for Fulham made their point. Indeed, the hon. Member for Carshalton and Wallington very fairly said that there was concern in the industry.

It would not be right for the House not to acknowledge the fact that millions of people would like to be consulted, not least the millions of people who were led to believe in April 1992 that, if they elected a Conservative Government, there would be reductions in tax. No one consulted them about the Government's policy to tax them again and again, with the result that we have the largest tax hike in peacetime history, without a word of consultation, let alone a word of apology from the Government.

5.15 pm

Mr. Dorrell : The last point made by the hon. Member for Edinburgh, Central (Mr. Darling) may be more fully addressed on Third Reading. On his narrower point about a proposed taxes management Bill, I tell him that the Government's view has not changed. We have said several times that we do not believe that a separate taxes management Bill is a sensible way for the House to go and that the Government's approach of ensuring that there is the maximum possible consultation, especially on issues that are not the stuff of intense party political interest or, indeed, of wider political interest, but are more narrowly technical in terms of their application to the tax system, is more sensible.

The Government have sought to consult widely on those issues before introducing proposals in the House. The contents of this year's Bill included several proposals that were the subject of extensive prior consultation. All the

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proposals on self-assessment were the subject of extensive consultation before the Bill was presented, and the proposals in chapter II on interest rate and currency contracts were consulted on widely, as were a number of other proposals. That is a better way to deliver detailed, in-depth discussion on the operation of legislation than introducing a specific Bill and expecting that our Standing Committee procedures can be refined to produce line-by-line consideration of such technical matters. I am bound to say that those who believe that our procedures could be thus refined suspend belief.

I now turn to the point of the amendment. It will come as no surprise to the House that I do not propose that we accept it. However, I am happy to accept the basic argument advanced by my hon. Friend the Member for Carshalton and Wallington : that we should ensure that we consult the industry to maximise the opportunity for agreement before the clause is brought into effect. I fully accept that further consultation is appropriate to establish precisely how the procedures should operate in relation to the repurchase of securities. It is for that reason that the legislation comes into effect from an appointed day rather than immediately after Royal Assent. The intention is to allow reasonable time to enable any potential compliance problem to be identified and addressed before the rules are extended to cover repos.

The consultation process has already begun, and I can assure the House that the objective is to establish a workable regime which does not impose on taxpayers a compliance burden that is more onerous than is absolutely necessary to protect the United Kingdom Exchequer. It is accepted on both sides that the Exchequer interest is an important interest. The intention of the clause is to safeguard that interest. We intend for that reason to ensure that the clause is implemented. There is no question of the clause not being implemented or of implementation being delayed indefinitely. The purpose of the clause is to protect the Exchequer from the real risk of tax being lost from repos being used to switch tax credits from persons who cannot use them to persons who can.

In discussing the procedural issues with market representatives, the Inland Revenue will attempt to arrive--this is the point about which my hon. Friend the Member for Carshalton and Wallington was concerned--at an agreed solution, if that is possible, which strikes an appropriate balance between the need to protect the Exchequer and the need to minimise the extent to which compliance requirements have to be imposed on markets.

I can give my hon. Friends the Members for Carshalton and Wallington and for Fulham the clear assurance that the Government have no intention of discouraging the legitimate repo market. It is a form of derivative which has a clear function to perform in financial markets, and I have no difficulty whatever with that. The use of repos to avoid tax in the way I have described is, however, not legitimate and it is that point that we wish to address. That focus was the reason for introducing the clause in the first place and the reason why the clause will ultimately be implemented. However, we shall try to do it by agreement.

Mr. Forman : May I briefly impose on the House a few more words ? There are two points on which I want to touch in relation to the comments by the hon. M for Edinburgh, Central (Mr. Darling). First, he suggested at one stage that the industry may be making an empty threat to move elsewhere. I am sure that he does not really believe that. In

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fact, many of the firms that are most concerned with those activities and which are growing most successfully are already multinational and already have offices established in other financial centres to which they can switch the business with a few phone calls. It would be as quick and as easy as that, so the matter is of real concern to the industry.

Secondly, the argument that all branches of society that are affected by tax could argue that they should have more time to consult with the Government does not hold as much water as the hon. Gentleman thinks. We are discussing an especially complicated area of tax and regulations, as I am sure that he appreciates. We are all pretty low on the learning curve with regard to derivatives and it is an area which is so arcane in the eyes of legislators and tax authorities that the need for consultation is underlined rather than diminished. That is all I shall say to the hon. Gentleman, and in a friendly spirit.

In his welcome remarks, my hon. Friend the Financial Secretary gave assurances for which I am grateful. I know that the industry will be grateful to have those assurances on the record. In the light of that, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 125 --

Payment by intermediary

Amendments made : No. 3, in page 119, line 11, leave out of the payment made by the intermediary' and insert

determined in accordance with subsection (2A) below.'. No. 4, in page 119, line 17, at end insert

(2A) The amount referred to is

(a) if the amount of the payment made by the intermediary is an amount to which the recipient is entitled after deduction of any income tax, the aggregate of the amount of that payment and the amount of any income tax due ; and

(b) in any other case, the amount of the payment made by the intermediary.'

No. 4, in page 119, line 17, at end insert

(2A) The amount referred to is

(b) in any other case, the amount of the payment made by the intermediary.'

No. 5, in page 119, line 18, leave out is made to an employee' and insert

of, or on account of, assessable income of an employee is made.'. No. 6, in page 119, line 24, after persons' insert who include'.-- [Mr. Dorrell.]

Clause 126 --

Tradeable assets

Amendments made : No. 7, in page 119, line 28 leave out 203B' and insert 203BD'.

No. 8, in page 119, line 29, leave out 125' and insert

( Employees working for persons other than their employers, etc. ).'-- [Mr. Dorrell.]

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Clause 130 --

Supplementary

Amendments made : No. 9, in page 122, line 10, after section,' insert (a)'.

No. 10, in page 122, line 12, leave out 203B to 203F' and insert 203B, 203BB and 203C to 203F, other than a payment whose amount is determined in accordance with section 203B(2A)(a) or 203BB(3)(a) ; and

(b) any reference to an employer includes a reference to a person who is treated as making a payment by virtue of section 203BB(2).'. No. 11, in page 123, line 32, after and' insert (subject to section 203G(2)(b))'.-- [Mr. Dorrell.]

Clause 131 --

Payments etc. received free of tax

Amendment made : No. 12, in page 124, line 14, at end insert (2) In this section any reference to an employer includes a reference to a person who is treated as making a payment by virtue of section 203BB(2).".'-- [Mr. Dorrell.]

Clause 176 --

Personal and trustee's returns

Mr. Dorrell : I beg to move amendment No. 14, in page 161, line 35, after may', insert reasonably'.

Mr. Deputy Speaker (Mr. Michael Morris) : I understand that with this it will be convenient to discuss Government amendments Nos. 15 to 23.

Mr. Dorrell : In the course of debate in Committee on the self- assessment provisions of the Finance Bill, the Government accepted amendments to the clause relating to personal and trustee's returns which were tabled by the Opposition. That was an example of the listening Government in action--the Government who are ever prepared to be flexible in response to sensible proposals from the Opposition. The amendments ensured that documents and other accompanying material required with a tax return issued to an individual or trustee would be limited to those which could be reasonably so required. It was a case that was pressed on us articulately and persuasively by the hon. Member for Newcastle upon Tyne, East (Mr. Brown) and I am happy to commend the resulting amendments to the House.

Mr. Nicholas Brown : It is not the Opposition's intention to oppose the amendments. Their purpose was to insert a test of reasonableness. The Financial Secretary, being a reasonable man, accepted our arguments and has been good enough to bring back the amendments on Report. I rise solely to thank him for it.

Amendment agreed to.

Amendments made : No. 15, in page 161, line 39, leave out required in pursuance of the notice' and insert so required'. No. 16, in page 162, line 19, after may', insert reasonably'. No. 17, in page 162, line 23, leave out required in pursuance of the notice' and insert so required'.-- [Mr. Dorrell.]

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Clause 179 --

Return of profits

Amendments made : No. 18, in page 164, line 16, at beginning insert

-( ) In subsection (1) of section 11 of the Management Act (return of profits), after the words "as may", in both places where they occur, there shall be inserted the word "reasonably".

( ) In subsection (1A) of that section, after the words "a company may", in both places where they occur, there shall be inserted the word "reasonably".'.

No. 19, in page 164, line 16, leave out from subsection (2) of' to

there' in line 17 and insert that section'.-- [Mr. Dorrell.]

Clause 182 --

Partnership return

Amendments made : No. 20, in page 166, line 11, after may', insert reasonably'.

No. 21, in page 166, line 14, leave out be required in pursuance of the notice' and insert reasonably be so required'.

No. 22, in page 166, line 21, after may', insert reasonably'. No. 23, in page 166, line 24, leave out be required in pursuance of the notice' and insert reasonably be so required'.-- [Mr. Dorrell.]

Clause 187 --

Amendment of partnership statement

Mr. Dorrell : I beg to move amendment No. 24, in page 173, line 35, leave out from notice' to under' in line 36 and insert

to each of the partners so amend his self-assessment'. The amendment clarifies the Government's intention that, where a partnership statement is amended, the Inland Revenue will notify each of the partners of the consequential amendment to their individual self-assessments.

Mr. Nicholas Brown : That was another of the Opposition's rare victories in Committee. Again, may I thank the Financial Secretary for returning to the matter on Report. It seems fair to us and clearly also strikes the Financial Secretary so, that the choice of partner should not be left to the taxing authorities. It should be clear that, if a notice is to be issued, each partner should be informed and that we should not rely only on the notice going to one partner who may not be the relevant partner for taxation purposes. That was the thrust of the debate in Committee, and the Government have accepted the reasonableness of the Opposition's point of view. I thank the Financial Secretary for it.

Amendment agreed to.

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